15% cap on surcharge on LTCG will delight HNIs, property owners and start-up founders

The budget has offered tax relief to long-term investors in capital assets other than equity funds and listed stocks. The surcharge on the tax payable on long-term gains from these capital assets (property, unlisted shares, artifacts) is proposed to be capped at 15%.

The surcharge on the long-term capital gains tax from equity funds and listed stocks is already capped at 15%. But for gains from other assets, the surcharge is based on the income slab of the taxpayer. It is 25% for incomes from Rs 2 crore to Rs 5 crore and 37% for incomes above Rs 5 crore. This pushed up the effective tax on the capital gains from these assets to as much as 25-27.4% compared to 11.5% payable on gains from equity funds and stocks.

“NRI investors and overseas funds are likely to benefit from the cap on the surcharge rate,” says Amit Maheshwari, tax partner, AKM Global. Bringing down the surcharge on capital gains from unlisted shares has also been a long-standing demand of startups. It will benefit those holding Esops of unlisted companies.

"Rationalization of surcharge rate on long-term capital gains will encourage investments in capital assets," says Amit Singhania, Partner, Shardul Amarchand Mangaldas & Co. But the proposal will benefit only those with an income above Rs 2 crore, as the surcharge on income below that income level is already 15%.